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The Morning Brief: Another SAC-Related Arrest; Ackman's Herbalife Pain
Another person has been arrested for insider trading stemming from the government’s probe of SAC Capital Advisors. Sandeep Aggarwal, a former equity research analyst for a San Francisco financial services firm, was arrested Monday and charged with conspiracy for providing material, nonpublic information to at least two hedge funds, including SAC. Aggarwal allegedly provided the information to Richard Lee, then a portfolio manager at SAC, according to an announcement from Preet Bharara, the U.S. Attorney for the Southern District of New York.
Aggarwal worked for Collins Stewart, according to a published report. Prosecutors allege Aggarwal illegally passed along information concerning a strategic partnership between Microsoft and Yahoo. Lee pled guilty on July 23 to one count of conspiracy and one count of securities fraud in connection with insider trading that allegedly occurred between April 2009 through 2010, while he was employed by SAC.
Community Health Systems agreed to buy hospital management chain Health Management Associates for $3.9 billion in cash and stock. However, shares of Health Management fell nearly 11 percent after the company announced that since June 10 it has received additional subpoenas on three different occasions from the U.S. Department of Health and Human Services regarding certain emergency room operations. In June, hedge fund Glenview Capital Management said it was planning to nominate eight directors to the HMA board of directors. On Tuesday, it issued a statement saying it is moving forward with its plan to “revitalize HMA” and urged HMA shareholders to consent promptly to replace the Board with its nominees.
In response to Herbalife’s earnings announcement, William Ackman’s Pershing Square Capital Management Tuesday morning sent out a press release picking apart the nutrition supplements company’s results as well as its projections, questioning its use of certain figures and even speculating when its new auditor, PricewaterhouseCoopers, would begin reviewing and auditing the company's reports. Ackman clearly needs to publicly ramp up his bearish case for the company and his view that it is a Ponzi scheme, given that Herbalife’s stock has nearly doubled this year alone. It fell less than 1 percent on Tuesday.
A.M. Best, the insurance rating company, placed the financial strength and issuer credit ratings of SAC Re, Steve Cohen’s reinsurance arm, under review with negative implications less than a week after the government brought criminal charges against the hedge fund firm. "Presently, there is uncertainty as to whether the invested assets can be managed by SAC Capital as well as whether there will be ramifications concerning any affiliation with SAC Capital on the reinsurance franchise going forward," A.M. Best said in a statement.
Marble Arch Investments, the hedge fund firm founded in 2007 by former Hound Partners executive Scott McLellan and Timothy Jenkins, lost about 3 percent in its main fund in the second quarter, citing “considerable short selling pain” in its second quarter report. Its shorts lost more than 8 percent in the second quarter, offset by longs, which were up more than 5 percent. Altogether the fund was up around 4 percent in the first half. Its top-five longs accounted for more than 40 percent of equity: Valeant Pharmaceuticals, FleetCor Technologies, Liberty Global, Discovery Communications and W.R. Grace.